Budget 2010 – Productivity and Innovation Credit

It was announced in Budget 2010 that a Productivity and Innovation Credit (ie.“The Credit”) will be available for 5 years for Year of Assessment (YA) 2011 to YA 2015. The Credit will provide significant tax deductions for investments in a broad range of activities along the innovation value chain.

On such activities is investing in automation. Of course, IRAS defines “automation” as costs incurred to acquire “prescribed automation equipment” (e.g. laser printer, modem).

You would be entitled to 250% allowance for the first $300,000 of qualifying expenditure, 100% allowance for the balance expenditure.

Example: Laptop costs $2,000
Capital Allowance under the Credit = 250% x $2,000 = $5,000.

Taxpayer can either claim $5,000 as capital allowance in its tax return or opt to convert such capital allowances in respect of Laptop into a cash grant. The cash grant is computed at 7% of the capital allowance under the Credit ie. $350.

Question – Why the flexibility for you to choose to claim or to convert?
The simple answer is taxpayer should claim if it could help to save on paying 17% corporate tax and you should covert to cash if there is very little or no tax payable eg. for new company with exempt income.

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